Had an interesting email come in yesterday. It came from a friend of mine in the appraisal industry and began with this question, “Care to reveal the minimum fee for a ‘typical’ 1004 + MC in your area?” The message went on to express some concern over some of the shenanigans that was going on in his own area concerning AMCs, low fees, and appraiser’s willingness to sell themselves short. Unfortunately, the same is likely going on in every community (yours included).
Though the question was likely rooted in a simple curiosity, the premise assumes I had a simple answer. I don’t. What is my “floor” with regard to appraisal fees? How low is too low? If I had to answer that question, I guess the response would have to be “free!” Let me explain.
The fact is, I do not have a “I will do an appraisal for this much, but no lower” number. Oh, I have some guidelines for accepting or rejecting orders, but they are based in what is being required of me rather than an arbitrary, ‘lowest-bid’ pinpoint. Every appraisal request I accept has been vetted.
Specifically, I am looking at the following criteria:
· Scope of Work
· Type of client
o How big of a pain in the a** are they to work with?
o What is their payment histories?
o How much business are they giving me?
o What is their delivery and review process?
o How have they treated me in the past?
o Is someone answering the phones who speaks English?
o Engagement Letter and history of asking for extras that are not necessary
· Area (how far from my office or difficult to find comps)
· Complexity of the property
· If I have done anything recently that is similar
· and other criterion
In other words, in answer to the question at hand, “It depends.” Now, I have my pride. I am not going to go out and do a full appraisal for $250 like some guys in my area do (on the other hand, if I did one IDENTICAL to it for the same lender last week… maybe I will).
Yesterday (the same day I got the email from my friend), I agreed to do an appraisal for free. Yes, I said “FREE!” Why? Well, it seems I had completed a land appraisal for him last year and had taken a picture of the wrong lot (Hey, it happens). He was quite upset and felt he had been wronged (though I do not think the value had been affected any). I admitted my mistake and agreed to redo the appraisal (with an updated effective date) without charge to him. Now, maybe correcting mistakes are a bit off the subject, but it goes to the heart of the issue. Each appraisal fee is based on the circumstance and not on an arbitrary number.
Some of my clients are on the ‘Wal-mart Model’ for pricing. If you are a clothing distributor and want to sell your line through Sammy Walton’s megastore, you must do so at a discounted price. However, nearly everyone wants to do business with Wal-mart due to their incredible volume and reach. To a certain extent, the same can be true with your clients. For example, I work for a large AMC (and have been with them for over 15 years) who gives me a ton of business. Frankly, they are great to work with (minimal scope of work and ‘extras’), and so I cut them a huge discount.
In regard to lowering fees, I will say this; my fees have actually INCREASED over the past year. In fact, I have seen about a 12% increase on average in just nine months! Why? Some of my clients are simply paying more as a standard and others are accepting my counter-offers more often than they had in the past. Higher fees mean I can make the same amount each year and free up time to focus on other things. That is a good feeling.
How are your appraisal fees determined? What criteria do you use in determining the acceptance of an order?
Now, go create some value!
Dustin Harris is a multi-business owner, but he has found most of his success as a self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He owns and operates The Appraiser Coach (www.theappraisercoach.com) where he personally advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth. He is also the Founder and President of Your Appraisal Office (www.yourappraisaloffice.com) which implements some of the systems he has developed to help lower costs and free up time for real estate business owners. He and his wife reside in Idaho with their four children.